Recently, the Federal District Court of the Sherman Division granted Safeco Insurance Company of Indiana's motion to compel appraisal, overruling the insured’s argument that a good faith disagreement and good faith investigation of the claim are conditions precedent to invoking the appraisal provision.  In Adami v. Safeco Ins. Co. of Indiana, No. 4:17-CV-574, 2018 WL 501093 (E.D. Tex.—Sherman Division, January 22, 2018, mem. op.), the insured made a claim with his insurer, Safeco, for water and foundation damage. In response, Safeco procured and provided an estimate to the insured. However, the insured believed the estimate was low, and sued Safeco for breach of the duty of good faith and fair dealing and violations of the DTPA and Texas Insurance Code. Safeco responded with a motion to compel appraisal. The policy’s appraisal provision provided “[i]f you and we do not agree on the amount of the loss ... then, on written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of such demand.” 

In response to Safeco’s motion to compel appraisal, the insured contended that there must be a good faith disagreement and that Safeco should have engaged in a good faith investigation of the claim as conditions precedent to invoking the appraisal provision. The court disagreed, noting that the rules of contractual construction require Texas courts to give contractual terms their “plain, ordinary, and generally accepted meaning[,]” concluded that the only condition precedent was that the insured and Safeco did not agree on the amount of the loss.

The insured further contended that Safeco engaged in “bleak, pervasive inferior claims-handling” and, therefore, could not invoke the appraisal provision. The court again disagreed and concluded that “the degree or severity of the alleged wrongdoing was not the deciding factor, or even a factor at all in the consideration. The plain language of the contract was the determining factor.”

In sum, the court held that “a good faith investigation and good faith disagreement [was] not a condition precedent to the appraisal provision.” The court noted that its holding “does not interfere with the requirement that insurers ‘deal fairly and in good faith with their insureds.’”

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